(Bloomberg) — As stocks struggled to move forward after a strong rally, bond yields fell on comments from Federal Reserve Governor Christopher Waller.
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Wall Street will be closely watching comments from Treasury Secretary nominee Scott Besant, who said the United States would be in economic crisis if the 2017 Republican tax cuts are not extended. Stocks trailed a nearly 2% jump in the S&P 500. As more companies took off, the tech megacap slide dragged down the market. Strong earnings from Morgan Stanley and Bank of America Corp also underperformed benchmarks.
“Investors are hitting the pause button following yesterday’s critical rally,” said Jose Torres at Interactive Brokers.
Waller told CNBC that if inflation data remains positive, officials may cut rates again in the first half of 2025, with Treasuries increasing. It also doesn’t completely rule out a cut in March. Transfer shopping has become a little bit easier this year.
Dollar hovers near two-year high. Besant stressed the importance of maintaining the greenback as the world’s reserve currency. Asked about any inflationary impact of President-elect Donald Trump’s economic plans, Besant said he believes the policies will bring inflation closer to the Fed’s target.
The S&P 500 was down 0.2%. The Nasdaq 100 lost 0.7%. The Dow Jones Industrial Average slipped 0.2 percent. The “Magnificent Seven” megacap index slipped 1.9%. Russell 2000 added 0.2%. The KBW Bank index fell 0.2 percent.
The 10-year Treasury yield fell four basis points to 4.61 percent. The Bloomberg Dollar Spot Index added 0.1 percent.
Despite the lack of strength in the equity market on Thursday, some traders indicated a buy signal on the latest sentiment survey from the American Association of Individual Investors.
Bearish sentiment on expectations that stock prices will rise in the next six months has dropped to 25.4 percent. Optimism is unusually low, below its historical average of 37.5% in seven weeks, the AAII said.
“We consider sentiment at extremes to be fairly reliable contrarian indicators,” said Larry Tentarelli in a Blue Chip Daily Trend report. “Investors tend to be very aggressive at market highs and very bearish near market lows.”
US stocks hit third record high – a sign of strength Late 1990s – Bank of America leads the list of potential market surprises for 2025.
This is a tall order but it is not inconceivable, according to the firm’s foundation, which floats the idea of the latest interpretation of its details, respecting the late Wall Street strategist Byron Wien.
After the S&P 500 index rose 24 percent in 2023 and 23 percent in 2024, high valuations make it difficult to achieve that kind of performance again this year. Woodard wrote in a report this week.
As traders reeled in corporate earnings, Thursday’s economic data was mixed. U.S. homebuilders were less upbeat about sales prospects, while retail sales figures suggested consumers held up well during the holiday season.
“The fourth quarter earnings season in the coming weeks will provide an opportunity for investors to shift some focus from macro to micro data,” said David Lefkowitz at UBS Global Wealth Management. “We continue to have an attractive view on US equities.”
Even a strong corporate earnings season can fuel a sustained rally in equity markets. This is the view of Helen Jewell at BlackRock Inc.
“It will be a reporting season, although not necessarily on the earnings numbers,” Jewell said in an interview. “My concern is more about how many hits are rewarded and how many misses, especially in the US where the valuation multiple is so high.”
Meanwhile, investors have increased their exposure to the biggest tech stocks, and don’t seem interested in hedging less than two weeks before earnings season for the group begins.
Savvy investors increased their exposure to megacap, growth and technology stocks to their highest level since July, according to data compiled by Deutsche Bank AG. And in 2024, after months of consecutive selling, hedge funds are returning to the fold.
Corporate Highlights:
Morgan Stanley’s fourth-quarter profit more than doubled, boosted by trading revenue that came in ahead of expectations on volatility linked to the U.S. election.
Bank of America reported a fourth-quarter profit as investment-banking fees hit a three-year high and net interest income beat forecasts.
PNC Financial Services Group Inc. and US Bancorp Inc. both issued muted forecasts for net interest income in the first quarter, amid uncertainty over whether low interest rates will revive credit demand.
Microsoft Corp. is raising the price of its Office apps for consumers, betting that subscribers will be willing to cough up more for new artificial intelligence tools.
UnitedHealth Group Inc
Target Corp. raised its sales guidance following a better-than-expected holiday season, but the increase wasn’t enough to ease investors’ concerns about profitability.
American Express will pay about $230 million to settle a long-running investigation into some of the company’s early sales practices that regulators said misled small business owners.
Rio Tinto Group and Glencore Pvt
Reliance Industries Ltd., controlled by billionaire Mukesh Ambani, posted slightly better-than-expected profits as gains from its telecom and retail units offset volatility in its petrochemical business.
The Taiwanese semiconductor manufacturing company reported quarterly sales and capital spending ahead of analysts’ estimates, raising expectations that spending on AI hardware should remain strong through 2025.
Key events this week:
China GDP, Property Prices, Retail Sales, Industrial Production, Fri
Eurozone CPI, Fri
US housing starts, industrial production, Friday
Some of the major activities in the markets are-
Shares
The S&P 500 was down 0.2% at 4 p.m. New York time
The Nasdaq 100 fell 0.7%
The Dow Jones Industrial Average fell 0.2%
The MSCI world index is little changed
The Bloomberg Magma 7 Total Return Index fell by 1.9%
The Russell 2000 index rose 0.2 percent.
The KBW Bank index fell 0.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.1 percent.
The euro was little changed at $1.0298.
The British pound fell 0.1% to $1.2229
The Japanese yen rose 0.8% to 155.22 per dollar.
Crypto currencies
Bitcoin rose 0.6% to $100,262.36
Ether fell 3 percent to $3,329.5
Bonds
The 10-year Treasury yield fell four points to 4.61%
Germany’s 10-year yield fell one basis point to 2.55%
Britain’s 10-year yield fell five basis points to 4.68%
Goods
West Texas Intermediate crude fell 1.7 percent to $78.66 a barrel.
Spot gold rose 0.7 percent to $2,714.48.
This story was produced with the help of Bloomberg Automation.
–Assisted by Sujata Rao, Margarita Kirakosian, John Viljoen, and Chiranjeevi Chakraborty.
